The Ease of Doing Business Index, formerly published by the World Bank, was designed to evaluate the regulatory environment in which small- to medium-sized enterprises operate across countries. It measures factors such as ease of starting a business, obtaining construction permits, access to electricity, property registration, credit availability, and more. A high score on this index suggests a regulatory environment that is conducive to business activity and economic development.
Understanding the Ease of Doing Business Index is critical for policymakers, investors, and researchers, as it serves as a proxy for the administrative and regulatory efficiency of a country. Countries that perform well tend to attract more investment, support entrepreneurship, and generally maintain a more dynamic private sector.
In the context of corruption, this index becomes especially interesting. Corruption can increase the costs of doing business, reduce efficiency, and deter investment. High levels of perceived corruption often correlate with bureaucratic red tape, weak enforcement of regulations, and increased incidence of informal payments. Therefore, studying the relationship between a country’s corruption level and its business climate can reveal insights into how governance quality influences economic potential and institutional performance.
In this paper we will explore the historical relationship of between countries’ ease of doing business and level of corruption. This is done in an effort to understand how the two are codependent, why they may not always be, and what this tells us about a country’s potential for economic prosperity in the face of corruption.
## # A tibble: 6 × 22
## Country `2024` `2023` `2022` `2021` `2020` `2019` `2018` `2017` `2016` `2015`
## <chr> <lgl> <lgl> <lgl> <lgl> <dbl> <dbl> <dbl> <dbl> <dbl> <dbl>
## 1 AFG NA NA NA NA 44.5 44.5 37.4 39.2 39.6 42.1
## 2 ALB NA NA NA NA 67.4 66.6 66.5 64.0 57.9 61.8
## 3 DZA NA NA NA NA 48.3 48.2 45.9 45.8 43.9 47.0
## 4 AGO NA NA NA NA 40.6 40.5 38.6 37.2 37.1 38.8
## 5 ARG NA NA NA NA 59.6 58.8 58.0 57.9 57.4 57.2
## 6 ARM NA NA NA NA 74.6 73.2 71.5 70.6 69.1 66.8
## # ℹ 11 more variables: `2014` <dbl>, `2013` <dbl>, `2012` <dbl>, `2011` <dbl>,
## # `2010` <dbl>, `2009` <lgl>, `2008` <lgl>, `2007` <lgl>, `2006` <lgl>,
## # `2005` <lgl>, `2004` <lgl>Our initial data analysis involved retrieving the historical data of the World Bank’s “Ease of Doing Business Index” (“BI”) and Transparency International’s “Corruption Perceptions Index” (“CI”). Both data sets were available on the respective organisations website, and required limited initialization, i.e., limited cleaning, matching of indices, etc.
The World Bank’s BI score was historically calculated based on a variety of factors in an economy’s business environment, focusing on the regulatory framework and public services directed at companies and markets (https://archive.doingbusiness.org/en/rankings). It aimed to provide a holistic measure encompassing key measures related to either starting a business in the country or establishing an existing business in the new country.
Transparency International’s CI score is an aggregated measure of each country’s public-sector corruption as perceived by experts and business people. It relies on a variety of independent factors that are established based on questionnaires and interviews with knowledgeable individuals and organisations. (https://www.transparency.org/en/publications/corruption-perceptions-index-2024) The factors are then aggregated into the CI score of a country, which serves as a robust approximation of the public-sector corruption level in a country. The score should be interpreted inversely, i.e., a high score indicates that a country faces a low level of perceived public-sector corruption.
Due to the duration of both data sets, the ISO3 country identifiers had changed throughout the years, thereby not matching between the two data sets. We have chosen to apply the ISO3 formatting of Transparency International, as this was the most up-to-date data set. The crux of this assignment lies in the fact that the World Bank hasn’t updated their BI score since 2020 due to conflicts regarding their methodology. In an attempt to understand how the BI score of each country in the world might have developed over the past four years, we will contextualize it using the more readily updated CI.
Observing the gradient heat world map, we see that higher values of the BI score historically have been centered around Western economies, namely the United States and the European Union. On a positive note, most countries in the world experienced rapid increases in their BI score in the period between 2012 and 2020, indicating that the world as a whole got easier to do business in.
We start by investigating the relationship between the data sets, this is done in an effort to better understand the last year with data. Initially we focus on the top and bottom values of each data set.
## Top 20 intersect: DNK FIN SGP NZL NOR SWE AUS EST HKG## Bottom 20 intersect: GNB COD AFG HTI GNQ ERI LBY YEM SYR VEN SOM SSDWe find that for each of the latest available data point, the countries in the top/bottom 20 rankings of each respective index are quite similar. For the top 20 countries on both the BI and CI rankings nine of them are the same, and for the bottom 20 the number is 12. This would indicate that there is a relationship between the two rankings, i.e., a country which has a CI score in general also exhibits a high BI score.
Plotting the data for when the BI score was latest available, 2020, we observe a pretty distinct linear relationship between corruption and business index, this would imply that the higher ranking a country has on the corruption index (which is inverted, i.e., the higher the less corruption) the easier it is to do business. This is in line with what we found in the analysis of the intersects.
The country with the shared first place on the corruption index (there are multiple), is also the country with the highest ease of doing business score. That country is New Zealand, a highly developed and robust economy in the Pacific Ocean.
Some notable outliers that either have a high/low corruption score but a low/high business score are:
While Azerbaijan and Uruguay explicitly go against the hypotheses that BI and CI go hand in hand, looking at the scatter plot it can be inferred that this is usually not the case.
We will now statistically test the linear relationship between BI and CI scores for the year 2020 in an effort to specify the correlation.
## R² value: 0.52## Second coefficient (slope): 0.54We find that for 2020 the linear regression relationship between BI and CI achieves an R² value of 0.52, which would indicate, at least for economic variables, a pretty significant linear relationship. Furthermore, we find that the slope of the linear regression, 0.54, would indicate that there is a positive relationship between the two. The economic interpretation of this is that for every 1-unit increase in the CI score of a country, we would expect its BI score to increase by 0.54. This is in line with our previously established hypotheses, and could help us in identifying the extrapolated values of the BI in the absence of an updated index from the World Bank.
Visual inspection reveals that the regression fails most significantly in the case of countries having both a very low BI and CI score. Which could indicate that countries which are below a certain threshold of economic activity do not benefit as much from improving their CI score.
We find that the regression over the eight years has roughly remained constant, however, notably the intercept has increased from 36.6 to 40.5 which would indicate that all countries have roughly become easier to do business in. Further to this we also find an increase in the slope of the regression over the years, indicating that the BI score has become increasingly linearly correlated with the CI score.
Overall most countries have roughly stayed within the same range over years, however, in our continued analysis we will explore the country with the highest increase in corruption index and largest decrease.
## We find that the countries with the largest absolute value change in CI score are: Belarus and LiberiaDuring the period of 2012 to 2020 Belarus displayed an immense increase in their business ranking, which could be seen as partially being the result of the decrease in perceived corruption. The country’s BI score increased from 58 to 74 during the eight year period, showcasing that the country became significantly easier to do business in, and in return probably saw an influx of economic activity
Liberia’s BI score on the other hand remained stable during the period, in spite of their corruption index decreasing substantially. The country’s BI score remained at 44 during the entire period, which could be a result errors in the data, however, alternatively, it could also indicate that the benefits of improving corruption in a country only bears substantial fruit in the case that other local economic factors are also up to a certain level.
To test this hypotheses we split the data set into countries with a BI score above or below median.
We conduct a linear regression on a differenced median-split upper and lower data set, which yields us with coefficients for how much an increase in the CI score of a country leads to an increase in the BI score of the country. We find that the linear relationship of countries which were above the median in BI score in 2020 to be 0.061, which is twice as large as for the below median data set of 0.033. This would imply that there are factors at work which prevent countries with lower BI scores from fully benefiting from a decrease in their country’s corruption.
Our findings reveal that the CI score may not be fully applicable as a proxy for the BI score, however, it remains as a factor that we can use to interpret how the BI scores of the World may have developed since 2020. We employ linear forecasting for the period 2021 to 2024 and plot the expected values of BI.
We find, mostly due to our small slope coefficients, that the BI scores of all countries were not expected to move much in the period 2021-2024. This is despite some countries having experienced rapid deterioration in their CI scores, namely countries like Russia and Belarus. We have however showcased that there is a relationship between a country’s BI and CI scores, illuminating the relationship of business and corruption in a country. Further research could focus on issues such as baseline economic requirements for when improvements in corruption showcase a marketable increase in BI score, or whether specific sub-factors of the BI score are more or less affected by corruption.
In this report we have investigated the relationship between Ease of Doing Business Index and Corruption Perceptions Index, we find that they have historically been very codependent, that is that countries with low levels of corruption generally also have better business environments. Further to this, we found that there are other underlying economic factors which both affect a country’s Ease of Doing Business score, but also the linear relationship between the two factors. The discontinuation of the Ease of Doing Business Index by the World Bank in 2020 has led to less transparency about the World’s business environment, but future holistic measurements could learn from the initial score’s mistake and improve visibility for entrepreneurs and governments alike.